Forex Market Review – Euro supported by reports of boost to IMF funds

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Euro recovered all losses against the dollar after a sharp dip due to higher Spanish bond yields following a bond auction today. EURUSD fell sharply to 1.3068 but soon rebounded and traded above 1.3117 in the US session. Concerns over Spain eased after the Bank of Spain said that the country’s banks have already covered their wholesale funding needs for the year due to the ECB’s cheap three-year funding operations (LTRO). Also the euro was supported by comments from IMF Chief Christine Lagarde who said at the IMF meeting in Washington DC today that she expected the IMF resources to be expanded significantly this week to help shield member economies from the debt crisis in Europe.

GBPUSD hovered at a five-month high trading above 1.6045. Sterling was boosted on Wednesday after a more positive Bank of England policy meeting minutes of the April meeting signalled the bank was unlikely to expand quantitative easing. The focus turns to UK retail sales data due on Friday, which are expected to be higher than previous.

Yen remained under pressure today as the Bank of Japan’s governor reiterated today that the BOJ is committed to continuing monetary loosening to fight high inflation. This raised speculation that central bank will step up easing measures at its policy meeting on April 27. USDJPY hovered at 81.43.

The Canadian dollar weakened sharply against its U.S. counterpart after worse than expected U.S. jobless claims benefits numbers. This raised concern that the economic recovery in Canada’s major trading partner was slowing, which could hurt trading between the two nations. Lower crude oil prices, a major Canadian export, also hurt the loonie. USDCAD rose to 0.9962 from 0.9878.

Crude oil prices fell below US$103 due to the disappointing U.S. data. Slower recovery in the world’s largest economy would dampen demand for oil.

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